The proposed FTA between the two countries is often touted as being Sri Lanka’s gateway to Southeast Asia and Singapore’s gateway to Indian Ocean. Singapore and Sri Lanka officially launched negotiations for a FTA on 18th July 2016.
“One component of this is the conclusion of our negotiations for a Free Trade Agreement between Sri Lanka and Singapore. We’re both committed to try to complete this before the end of the year. It will be a modern, comprehensive, high quality, ambitious Free Trade Agreement. It will demonstrate to the world that both of us are open for business and we encourage all investments,” Singapore’s Foreign Affairs Minister Dr. Vivian Balakrishnan said during his official visit to the country last week.
STATS and status quo
According to the Institute of Policy Studies, Singapore is not a significant export market for Sri Lanka. In 2015, exports to Singapore amounted to US$ 85 mn or less than 1 per cent of Sri Lanka’s total exports and export growth over the last 5 years has been disappointing.
Major products exported from Sri Lanka include petroleum oils (other than crude), tea, rubber tyres, previous/semi-precious stone, flour, and fish. As a source of imports, Singapore was Sri Lanka’s fifth main import partner and contributed to 5 per cent of Sri Lanka’s total imports. In 2015, Sri Lanka imported goods worth US$ 923 mn from Singapore and main imports included petroleum products, machinery, electronic equipment, chemicals, plastic, and food stuff.
The balance of trade therefore is heavily in Singapore’s favor. An FTA will provide Sri Lanka duty free access to Singapore and vice versa for almost all goods — bilateral trade between the two countries can be expected to expand from the current level of just over US$ 1 bn and it is hoped Sri Lankan exports will see a sharp increase.
An FTA may also lead to an increase in foreign direct investment from Singapore, which is the fourth largest investor in Sri Lanka. In 2014, US$ 102 mn worth of Singaporean FDI came into the country. Currently, there are over 100 Singaporean companies operating in Sri Lanka. To date, Singapore has invested US$ 530 million in Sri Lanka. Sri Lankan companies have also invested more than US$ 120 million in Singapore.